The TARP Capital program is intended to strengthen our financial system by increasing the capital base of a broad array of institutions.

The TARP Capital program aims to increase the flow of financing to businesses and consumers to support our economy.

Application Timing and Availability of Funds

Mr. Kashkari noted that Treasury believes there is sufficient capital allocated for all qualifying institutions and emphasized that the program is not being implemented on a first-come, first-served basis. Mr. Kashkari also emphasized that the Treasury is working hard to finalize and publish the required legal documents so private banks can participate on the same economic terms as public banks. He noted that the deadline will be extended for private banks.

Increased Bank Lending

Mr. Kashkari made the case that the TARP Capital program will lead to increased bank lending. Not only has the Treasury heard from regional banks that applied for TARP Capital planning to use the funds to take on new borrowers, but he also noted that the financial incentives to make new loans are “strong and clear.” The Treasury hopes that market forces will allow the TARP Capital program to increase the flow of financing to business and consumers without further action by the government.

Kashkari emphasized that less than half the money is out the door, noting that it will take “a few months” to complete all of the investments. He also made clear that the last thing the Treasury want to encourage is for banks to resume the poor lending practices that contributed to the current economic problems.

Evaluation Process

The Treasury has worked with each of the primary federal banking regulators to establish a standardized evaluation process; all regulators are using the same standards to review all applications. After reviewing an application, the primary federal regulator will take one of three actions:

For applications that will not be recommended for TARP Capital, the regulator will encourage the institution to withdraw the application.

For applications that are considered particularly strong, the regulator will directly send the application and a recommendation to the TARP Investment Committee at the Treasury Department.

For borderline applications, the regulator will forward the application to a Regulatory Council, consisting of senior representatives of the four federal banking regulators, for a joint review and recommendation. The Regulatory Council will then make a recommendation of either withdrawal or approval.

The TARP Investment Committee reviews all recommendations from the regulators and makes a recommendation to the Assistant Secretary for Financial Stability, who makes the final decision. While the Treasury makes the final decision on any investments, it gives considerable weight to the recommendations of the banking regulators. In some cases, the Investment Committee may send the application back to the primary regulator or the Regulatory Council for additional information or further review.

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